Businesses Urge OECD to Simplify Tax Reporting for Pillar Two, Increase Tax Certainty
Interest groups, large companies and accounting firms concerned about the complexity involved in tax reporting for Pillar Two.
On 16 March 2023, representatives from various interest groups, large companies and accounting firms told the Organisation for Economic Co-operation and Development (OECD) that they are concerned about the complexity involved in tax reporting for Pillar Two and of their desire to develop a method that improves tax certainty.
They were attending the OECD's virtual public consultation meeting on compliance and tax certainty aspects of the Pillar Two global minimum tax. The discussion focused primarily on tax return preparation and tax certainty issues. The OECD intends to consider the suggestions made during the consultation, which will lead to additional guidance.
As part of the ongoing work on the "two-pillar solution", the Inclusive Framework (IF) solicited stakeholder input on aspects of compliance and coordination. The goal was to achieve coordinated outcomes for multinational entities (MNEs) while minimizing compliance burdens and avoiding the risk of double taxation.
Tax return preparation
One of the hot topics concerned the information returns regarding the global anti-base erosion (GloBE) proposal under Pillar Two. These returns serve to seek input on the amount and type of information that MNEs should collect, retain and report under GloBE rules. In general, stakeholders urged the OECD to simplify the report preparation by limiting the volume of reportable information. Speakers also encouraged the OECD to streamline the entire process based on a standard approach with a coordinated outcome.
Increasing tax certainty
The other key element of the consultation concerned tax certainty issues. Tax certainty aims to outline various mechanisms, including dispute avoidance and resolution.
Stakeholders emphasised that domestic minimum top-up taxes (QDMTTs) would form the backbone of the minimum tax framework, as they would be the first step of global minimum taxation followed by other collection measures.
The stakeholders stressed the importance of developing a method that improves tax certainty. Futoshi Miyazaki from Keidanren, the Japanese business federation, noted that QDMTTs are based on accounting standards that differ from the consolidated standards required for the income inclusion rule (IIR). Accordingly, this might create a discrepancy in the calculation of the effective tax rate (ETR).
Participants also called for more productive dispute resolution instruments, including the development of a coordinated risk assessment with binding nature.
New developments to monitor
Marco Iuvinale, representing the OECD's Working Party No. 11, confirmed that as a next step, the OECD will plan to adjust the information return based on stakeholder inputs and also provide updated administrative guidance. This would include developing a method so that MNEs in qualifying jurisdictions won't have to prepare GloBE calculations apart from the QDMTT required for local jurisdictions. The OECD will also seek to further specify the tax treatment of the ETR considering the different interpretations to increase tax certainty. Iuvinale also states that the OECD will facilitate cooperation between administrations.
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